Apple eyes pay-by-touch for next iPhone

Apple is working with Dutch chipmaker NXP to add secure short-range wireless technology into the next iPhone, enabling new pay-by-touch capabilities in the latest bid for the smartphone to replace the wallet.

Several people familiar with Apple's plans say NXP will provide the secure near-field communications chips that will allow an iPhone to connect with payment terminals or ticketing systems, as well as opening up the possibility for other applications in the "internet of things."

NFC technology allows a smartphone to communicate wirelessly with other devices by tapping them together.

On Thursday, Apple announced its plans for a product launch event on September 9 at which it is expected to unveil new iPhones. Apple and NXP both declined to comment on whether the new devices would contain the Dutch company's NFC technology.

Analysts say Apple could galvanise a smartphone payments market that has struggled to take off, even though tap-to-pay technology has been built into mobile devices for eight years. Thanks to iTunes and the App Store, Apple already holds credit card details for some 800m customers, giving it a potential advantage over the many earlier attempts at mobile payments. It has been recruiting executives with experience in mobile payments for the last several months in both Europe and the US.

Nokiaintroduced the first NFC phone in 2006, while several smartphones from the likes ofSamsung ElectronicsandLG Electronicshave included the technology since 2011. NXP also supplies NFC chips for some of Samsung's flagship Galaxy phones.

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So far the iPhone has been a holdout, leaving only half of US smartphones equipped with NFC today, according to Jackdaw Research.

Google, whose Android operating system powers Samsung's Galaxy smartphones, tried to kick-start the market for NFC-based payments in 2011 with its Wallet app, allowing customers to transact through dedicated terminals at US stores and restaurants.

But while NFC phones have become popular in some markets such as Japan, where they are widely used to make payments on public transport, the plastic credit card has so far remained stubbornly resistant to technological disruption.

Adoption of Google Wallet in the US remains limited and other efforts to persuade customers to use their smartphones for payments, such as Square's Wallet app, PayPal and telecoms joint-venture Isis also remain at an early stage.

If Apple entered the market, "millions of consumers in the US would suddenly have a tightly integrated solution built into their devices," said Jackdaw analyst Jan Dawson in a blogpost this week, although it would "still suffer – at least at first – from the same problem of a lack of terminals which could accept payments."

In parts of Europe and China, NFC-based credit cards are already used to pay for low-cost items such as sandwiches but the technology has been slower to catch on in the US. Apple's arrival may come at an opportune moment, as US retailers prepare to upgrade their cashier terminals.

Visa and MasterCard have set a deadline of October 2015 to switch from swipe-and-sign credit card payments to European-style chip-and-PIN terminals, many of which could also include NFC capabilities. Apple's own retail stores already use handheld terminals equipped with NFC.

In 2012, Apple was granted a significant patent for a sophisticated mobile payments system involving NFC. The patent submission suggested that iTunes could be used to manage credit card statements. The company has made several subsequent patent applications for components of a mobile payment system, some working in conjunction with iBeacon, its Bluetooth-based location-sensing technology.

NXP is already a supplier to Apple in other areas. Its stock rose 2 per cent on Thursday after technology magazine Wired reported Apple's plans for NFC, even without naming NXP as a supplier. Its market valuation on Nasdaq has increased by more than 50 per cent so far this year and now stands at almost $17bn.

—By Tim Bradshaw and Sarah Mishkin in San Francisco and Daniel Thomas in London, the Financial Times